Eurozone: GDP rose by 0.8% q/q in QI; above expectations

FOREX NEWS: As it became known today, GDP in Eurozone rose by 0.8% (+2.5% y/y) on quarterly basis in QI, while the forecast of growth was to 2.2% y/y and the previous level 2.0%.
 
 

Source: Liteforex.org rss feed

Eurozone: Final HICP in April: +2.8% y/y

FOREX NEWS: As it became known today, consumer inflation HICP in Eurozone increased by 2.8% y/y in April against the level of +2.7% y/y in March.
At the same time net final HICP rose by 1.6% y/y in April against the level of +1.3% in March.

Source: Liteforex.org rss feed

Eurozone: Final PMI in manufacturing sector rose to 58.0 points in April

FOREX NEWS: According to the data released today, final PMI in the manufacturing sector of Eurozone rose to 58.0 points in April against preliminary level of 57.7 points.
 
 

Eurozone: Final PMI in service sector fell to 56.7 points in April

FOREX NEWS: As it became known today, final PMI in the service sector of Eurozone fell to 56.7 points in April against preliminary level of 56.9 points and the level of 57.2 points in March.
 

Eurozone: European Central Bank has kept interest rate at the level of 1.25% per annum

FOREX NEWS: As expected, European Central Bank decided to keep interest rate at the previous level of 1.25% per annum.
 

Eurozone Debt Worries Resurface to Hold Euro Lower vs Dollar/Yen

In Asian trading today, as investor focus returns to Eurozone fiscal problems the common currency Euro extended earlier losses against the greenback after failing to break above key resistance.

Massive Earthquake Shakes Japan; Markets Shaken by Eurozone Debt

The 8.9 magnitude earthquake in Japan has added to the other worries of speculators these days to exacerbate the correctionary forces already in place, and risky assets were sold today all around the world as even Japanese goverment bonds managed to appreciate in a quick flight to safety. To be sure, the cost of rebuilding and stimulating the economy after the earthquake will plunge Japan  deeper into the red, as it struggles with a budget deficit and a public debt that is monstrous even by the standards of our extraordinary times. Yet the buyers of Japanese bonds seem to believe that if the worst comes to pass, it is still better to have a guarantee that you can get your principal back, which explains the popularity of government debt in the midst of great concern about the viability of public finances and inflation risks.

We are equally surprised to learn from a report in Bloomberg that PIMCO is going to be starting a derivative-lite version of its main fund controlling $230 billion in assets. The new fund will use less leverage, purchase less high yield paper and generally avoid the more exotic forms of risk that have been favored by the financial market over the past decade. It is a sign of the changes that the finance world is going through, and the shift in mentality towards greater conservatism in all fields, that the world`s most successful bond fund which has beaten "98% of competitors over the past 24 years" is now averse to risk plays that have made it such a success and a popular name in its field.

In Libya, the Colonel`s mercenaries and regular Libyan armed forces units are reported to have regained control of some of the oil producing regions near the town of Sirta, where clashes were taking place in the past days, with Western leaders moving slowly towards more drastic action against the dictatorship in spite of a lack of leadership. Today, France went so far as to recognize the opposition movement`s leadership as the legitimate representative of the country, and while others have so far not taken this step, it should not be long before whatever remains of the regimes legitimacy is destroyed by the Colonel`s erratic and arbitrary decisions.

Nobody should be surprised that sovereign debt issues in the Eurozone are resurfacing in this highly pessimistic environment, and we note the rise in the yield of Portuguese debt as the country`s finance minister warns of the need to understand the consequences of the crisis. We don`t think that the minister was saying anything extreme, but the market, in its usual habit, is waking up to all the risks and dangers at the same time, and lumping junk European debt with all the rubbish out there at a time of  great tension.

In short, today is proving to be an active day with lots of gloom in the air, and we can only expect it to get worse before it gets better, especially as the true scope of Chinese tightening, Middle East Revolution, and the Eurozone crisis remain inadequately understood. 

Markets Focus on Today's Eurozone Debt Auctions, CDS Rates Rise, Stocks Fall

Market sentiment was dampened yesterday by today`s large debt auctions in the Eurozone, where the weaker members of the union will be borrowing at least $43 billion. Credit default swaps rose on Ireland, Belgium, Portugal, and while the CDS index that measures that default risk of Western European governments rose to match a record yield of 228 bps. There is a strong sense of tension all around the world as the results of these events approach.

Stocks were lower in response, and in Asia, Indonesia and India were the biggest losers. India`s not being treated very kindly nowadays after the scandals that shook the country a short while ago, while Indonesia is suffering from a worrisome inflation trend in line with the rest of the region.  In Europe, naturally, the falls were sharper, while U.S. markets performed reasonably well in spite of the tense atmosphere.

The dollar, naturally, gained against almost all of its peers, while oil rose on anticipation that Asian demand will remain strong. We are pessimistic on oil in the near term, and expect it to reverse course if the European problems intensify, or the Chinese aggressively continue with their rate rises. Commodities are likely to gain to some extent this year as the Fed continues its easy money policies, but perhaps the first half will not be as rosy as some seem to be expect. Gold, meanwhile, should stay on its upward track, notwithstanding the severity of its up and down swings as volatility remains high.

Today`s events are obviously of great significance. What we expect is that, while auctions will find sufficient buyers, in line with the trend of the months, rates will be higher, and money will be supplied at a high price. Regardless of the result, markets are unlikely to be convinced one way or the other, since lacklustre demand is unlikely to signify a withdrawal of borrowers, and a strong showing doesn`t imply much for the future. This makes sense, because the debt issues are long term and will not be settled by one or two auction`s results. If Ireland is shunned by creditors, however, we suspect that it will only trigger stronger European intervention, and not capitulation, as some commentators seem to expect. It is hard to see, as we like to emphasize, how they can reverse course after committing so much to the economic and political integration of the continent. And while perhaps dropping some aspect of the European Monetary Union doesn`t signify a lot from a pragmatic viewpoint, the same cannot be explained to voters in the region. All that convinces us that European politicans will only capitulate  when they are absolutely out of options, but with the Fed allied to them on the other side of the ocean it is hard to see how that even sort of situation would develop.

In summary we don`t expect much to happen as long the present governments remain in place. But we still believe that the Eurozone will disintegrate at some point in some way, only with the additional qualification that this development will be the consequence of powerful political events, and not some predictable surrender to speculators and the markets.

Markets Focus on Today's Eurozone Debt Auctions, CDS Rates Rise, Stocks Fall

Market sentiment was dampened yesterday by today`s large debt auctions in the Eurozone, where the weaker members of the union will be borrowing at least $43 billion. Credit default swaps rose on Ireland, Belgium, Portugal, and while the CDS index that measures that default risk of Western European governments rose to match a record yield of 228 bps. There is a strong sense of tension all around the world as the results of these events approach.

Stocks were lower in response, and in Asia, Indonesia and India were the biggest losers. India`s not being treated very kindly nowadays after the scandals that shook the country a short while ago, while Indonesia is suffering from a worrisome inflation trend in line with the rest of the region.  In Europe, naturally, the falls were sharper, while U.S. markets performed reasonably well in spite of the tense atmosphere.

The dollar, naturally, gained against almost all of its peers, while oil rose on anticipation that Asian demand will remain strong. We are pessimistic on oil in the near term, and expect it to reverse course if the European problems intensify, or the Chinese aggressively continue with their rate rises. Commodities are likely to gain to some extent this year as the Fed continues its easy money policies, but perhaps the first half will not be as rosy as some seem to be expect. Gold, meanwhile, should stay on its upward track, notwithstanding the severity of its up and down swings as volatility remains high.

Today`s events are obviously of great significance. What we expect is that, while auctions will find sufficient buyers, in line with the trend of the months, rates will be higher, and money will be supplied at a high price. Regardless of the result, markets are unlikely to be convinced one way or the other, since lacklustre demand is unlikely to signify a withdrawal of borrowers, and a strong showing doesn`t imply much for the future. This makes sense, because the debt issues are long term and will not be settled by one or two auction`s results. If Ireland is shunned by creditors, however, we suspect that it will only trigger stronger European intervention, and not capitulation, as some commentators seem to expect. It is hard to see, as we like to emphasize, how they can reverse course after committing so much to the economic and political integration of the continent. And while perhaps dropping some aspect of the European Monetary Union doesn`t signify a lot from a pragmatic viewpoint, the same cannot be explained to voters in the region. All that convinces us that European politicans will only capitulate  when they are absolutely out of options, but with the Fed allied to them on the other side of the ocean it is hard to see how that even sort of situation would develop.

In summary we don`t expect much to happen as long the present governments remain in place. But we still believe that the Eurozone will disintegrate at some point in some way, only with the additional qualification that this development will be the consequence of powerful political events, and not some predictable surrender to speculators and the markets.

FX Headlines: Euro-Zone Industrial New Orders Disappoints, EURUSD Extends Losses

Industrial new orders in the 17 member euro area rose 1.4 percent in October after falling 4.2 percent the month prior amid expectations of a 1.5 percent increase, while the annualized rate jumped 14.8 percent.

IMF Complains about Eurozone Inaction, Markets Focus on Irish Budget

A short time from now, the results of the final Irish vote on the new and severe austerity budget of Finance Minister Brian Lenihan will be made public. In all likelihood, the budget will pass, but a failure has the potential to send the entire market upside down so soon after the jump in CDS and bond rates last month. Reflecting this sentiment, the Euro has settled near the unchanged level after moving up and down for much of the day, while the USD is lower by as much as 1% after making similar movements during the day. Gold has been volatile, and after testing $1429 and breaking a new record during the day, it is down by around $5 on the day as this is being written. Stocks, however, are up across the board, with weakness limited to Japan and Asia. Europe and the U.S. are up strongly.

Today the Fed is reported to have continued the heavy bond purchases of yesterday, and today's action recorded an all-time high acceptance rate of 41.5% in two separate bond purchases worth $6.8 billion, and $16.4 billion. Apparently in response to the weak Friday NFP number, Ben Bernanke has committed his institution to a very aggressive course where the self-imposed $600 billion limit could be exceeded easily. Certainly, data releases in 2011 may show some improvement in the U.S. economy, but it is unlikely to be strong, and with the European issues in the minds of traders and consumers, we find it difficult to believe that a significant change in the growth path of the U.S. can be achieved. Most statistics earlier this year implied that the U.S. would be in a recession by now, and it is not too much to assume that the revival in activity is at least in part due to the expectations of aggressive Fed intervention in the economy and the market. As such, we suspect that as the end of the announced bond purchase period approaches, investors and consumers may begin to retrench once again, necessitating a further dose of quantitative easing by the Fed, which seems only too willing to supply as much of the favored medicine as possible, with almost no concern about the side effects. The USD, in particular, is the sufferer.

In Europe, as we mentioned, it is more of the same today, with limited directionality in the market action of the most important segments, but we note the critism of Dominique Strauss-Kahn, the IMF director who commented today that "the euro zone has to provide a comprehensive solution to this problem," after meeting Greek prime minister George Papandreou in Athens, adding that "the piecemeal approach is not a good one." His agreement with the Greeks is not a surprise, since they are on the receiving end of aid, while the IMF director's main interest is ensuring that the global financial system is spared the shock of a Euro breakup at all costs. The Germans, who appear to be the main objectors to the proposals of improved EFSF coverage, and joint bond issuance, are the ones to pay, and their position is equally understandable. They have been fleeced enough in consequence of their commitment to the European project, and that they don't appreciate any more of the sour dish is not to be blamed on the choosiness or gluttony. And yet, here lies the crux of the matter, since when all sides have meaningful, solid arguments and positions that appear difficult, if not impossible to reconcile, a deadlock has been reached, and a solution will be much more difficult to find. That is what seems to have happened in the Eurozone. To be sure, the bailout party is not over yet, since the politicians will yield once they are cornered again and forced to make a yes-or-no decision. But this cannot go on forever.

In yet other Eurozone and ECB news, we have the quaint announcement today that another round of stress tests will be conducted in February, since it has become apparent that the market does not take the July's mock-examination seriously. The problem that the ECB faces in this issue is that each time they undertake to conduct successively stricter tests, and fail to apply criteria as severe as the market would like to see, they risk creating a self-sustaining cycle whereby investors unnerved by the dishonesty of the ECB sell-off on risk, and undermine the financial status of the banks which the tests had tried to assess. And when the deterioration in the situation is so sharp that it can't be ignored anymore, the central bank moves to repeat its actions, with unsavory results. Let's hope that this time the ECB will not be as conservative in its risk assessment as it is with its monetary policy.

3-month Euribor is one bp higher today at 1.029% vs. yesterday's 1.028%. The PBOC kept the USDCNY rate near unchanged.

Today is a day of suspense and rest for the markets, and it is possible that trading will go into a weaker tone as the end of the year approaches. One must not underestimate the possibility of a Euro rally, however, since many traders will prefer to close positions heading into this period in order to cash out on profits, reassess strategies, and for bookkeeping purposes. All that could lead to a Euro rally, but we don't think that the 2011 outlook for the currency is bright given the large number of open questions that await their answers. The Fed may be determined to supply as much cash to the market as it needs in order to fulfill the narrowminded goals that it has defined for itself, but Eurozone problems, and the future of China remain the key issues nonetheless, and may easily undo or make irrelevant whatever choices the Bernanke team may take.

Will a Better Than Expected Euro-Zone CPI Estimate Keep the Bullish EURUSD Trend Intact?

Euro-Zone consumer prices estimate for the month of December is expected to rise an annualized 2.0 percent after climbing 1.9 percent in November. The reading is of particular importance due to the fact that inflation pressures lead the European Central Bank closer to raising the benchmark interest rate.

Forex: Euro, British Pound Rally As U.K. PMI Manufacturing and Euro-Zone CPI Estimate Tops Expectations

The British pound pared yesterday’s losses against the greenback as the U.K. PMI manufacturing report in December rose to 58.3 amid expectations of 57.2 to mark the highest reading in 16 years.